Determine the time period of the detailed forecast

Assignment Help Management Theories

Reference no: EM132297896

Assignment: Securities Analysis

Company: General Motors Company

Free Cash Flow Analysis ( 4-5 pages )

Purpose of this section of the paper is to forecast and analyze your firm's FCFF or FCFE. The majority of the information necessary to compute cash flows comes from either the reported financial statements or the Value Line report.

A. Set the Time Frame of the Forecast. Be realistic in selecting the detailed analysis time frame. For a large established company, a 10-year forecast may make sense. You may divide the time frame into three stages: the immediate future stage (e.g. 5 years), the transitional stage (e.g. 5 years), and the mature stage (after that).

B. Determine the time period of the detailed forecast for which good estimates are possible and of the simplified forecast for the more distant future.

C. Perform the detailed forecast for the near future stage, where good estimates are possible. You can use following formula and make some comments if necessary:

FCFF= EBIT x (1 - TaxRate) + Depreciation - CAPX - Increase in NWC

FCFE = FCFF -Interest x (1-TaxRate) + Increases in net Debt

You can either use the ValueLine approach (recommended) or the Sale-based approach.

D. Important inputs to discuss/think about:

• Are your margin projections increasing/decreasing/constant?

• Is investment in capital expenditures increasing or decreasing?

• Is depreciation & amortization increasing or decreasing?

• Does the change to Working Capital make sense?

• What is your tax rate?

Do not forget to cite your sources where it is necessary.

Do not forget to provide your Excel template.

Reference no: EM132297896

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